Finance Your Restaurant Business enterprise With An individual Else's

Should you be within the restaurant business enterprise, you definitely will not will need me to tell you how challenging it may be financially.

Even though you are constructing up the reputation of the establishment, dollars is often tight and one particular poor night can mean an unprofitable week. As for money flow ? nicely, the cash definitely flows, does not it You just wish that far more of it was flowing in than out. And what about these slow periods What do you do if they last longer than you anticipated How do you get the funds you?ll need to acquire your restaurant organization over that hump.

OK, I am painting an unfavorable picture right here, but funding might be a problem for even by far the most successful restaurant, especially if you wish to expand rapidly. The query remains: what exactly is the most beneficial approach to get financing for the restaurant

LOANS

A loan may well be an obvious way to raise finance for your restaurant business enterprise, but have a look at it from the point of view on the lender.

The 2004 Restaurant Market Operations Report published by Deloitte & Touche LLP indicates that average pre-tax profit margins range from 4-7%. This means that, from the lender?s point of view, even a profitable restaurant is a big risk. The bigger the risk, the bigger the interest payments ? that is, in the event you even get approved for a loan at all. High interest rates, of course, can bring their own problems, particularly for a very low margin business enterprise such as the restaurant trade.

Lenders will, admittedly, appear a lot more favorably on you for those who also own your premises. However, you need to be aware that funding your company using real estate as collateral means that it may be the potential resale value of your property that lenders are looking at. The purpose of the property itself may perhaps actually reduce its resale value as there would be a smaller pool of potential purchasers. Thus, many lenders set very high minimum loan amounts, which may possibly not be suitable for your particular circumstances.

In case you do decide to go the loan route, then speaking to a specialist lender with expertise within the restaurant industry is essential.

ACCOUNTS RECEIVABLE FACTORING

Factoring is a form of commercial finance where a small business can accelerate its cashflow by selling its accounts receivable at a discount. This means that the business does not have to wait for outstanding invoices to be paid in order to receive the money necessary to finance the enterprise moving forward.

For many service based firms, accounts receivable factoring is an extremely good way of quickly accessing cash. However, restaurants rarely have much enterprise of this kind.

What they do have, however, is a high volume of credit card transactions. By leveraging these, budding restauranters can ? literally ? fund their restaurants with other people?s credit cards.

CREDIT CARD CARD FACTORING

Essentially, restaurants can sell their future credit card transactions and receive an advance on that cash ? usually up to around $120,000. The dollars can be used for any purpose ? from expanding premises to buying new equipment or whatever you want. This isn?t a loan, so there is no personal guarantee needed. It?s simply an advance against future credit card settlements.

The company purchasing takes a small, fixed percentage of future credit card transactions until the advance is repaid.

The advance money can usually be made available within 14 days, so ? for the restaurant enterprise that is in need to have of a quick injection of funds ? this is a good option. Of course, there are restrictions on who can apply. Generally speaking, a restaurant would have to be running for more than 1 year, take over $5,000 per month in Visa/Mastercard transactions and have far more than 1 year left on their lease to qualify.

For the restaurant that has been in existence a lot more than a single year, this represents the best method of further growing your business enterprise at minimum professional or personal risk.

COMPANIES PROVIDING RESTAURANT FINANCING

There are a number of companies out there offering financing of this kind to restaurants. The main points to watch out for when selecting such a company are as follows :

i) Application Fee ? Companies charging an application fee really should be avoided. To be honest, there isn?t much paperwork involved in this process, so an application fee is unnecessary.

ii) Closing Costs ? Again, companies charging ?closing costs? are finest avoided. There are enough companies out there competing for your organization.

For the young or established restaurant small business, credit card factoring would be the most effective way of finding the funds you need to expand your enterprise. So, fund your restaurant using somebody else?s credit card !

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